Many people are considering a side income and Forex trading seems like the perfect fit. However, while Forex trading indeed presents a unique opportunity for people to make money, it is not a walk in the park as many things are involved. One of such things is your Forex broker.
The kind of broker you work with will go a long way to influence your experience in trading. Yet, the right Forex trader is imperative to your success as a trader. Therefore, you need to approach the choice of a broker with a clear head and avoid being carried away by marketing gimmicks.
This article will explore how you can sift through the plethora of forex brokers trying to get your attention. First, you need to explore their features and see if it corresponds to what you want. Here are five ways to get the perfect trading broker for your Forex trading business:
Since you will have to commit your money to your broker, it is essential to ensure that they can be trusted. This is where the level of security comes in, as you will not simply hand your money to a broker who claims to be legit.
Accessing the credibility of the broker is not a hard job. Almost all countries have regulatory agencies that control the affairs of legit Forex brokers. Here is a list of country with the corresponding regulatory body:
- United Kingdom: Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA)
- Australia: Australian Securities and Investment Commission (ASIC)
- United States: Commodity Futures Trading Commission (CTFC) and National Futures Association (NFA)
- Canada:Investment Information Regulatory Organization of Canada (IIROC)
- Germany:Bundesanstalt für Finanzdienstleistungsaufsicht (BaFIN)
- France:Autorité des Marchés Financiers (AMF)
Any broker you consider must be a member of the regulatory body mentioned above before considering putting your money there.
2. Transaction Costs
There are transaction costs for almost every currency trader. Whenever you enter a trade, you will be charged, either for the spread or for the commission, which makes it essential to look for the ones with affordable prices.
However, there are times you might need to work with the best forex trading broker with a higher transaction cost. Be sure to know if the tight spread is the best for your trading type and explore the options you have available. This is a game of balance between security and reasonable transaction costs.
3. Trading Platform
This is like the portal with which you access the market. As a result, it is essential to ensure the software and platform offered by the broker have all the necessary tools they will need. Besides, entering and exiting a trade should be easy.
You should prioritize a well-designed trading platform that has conspicuous buy and sell buttons. Some platforms have integrated a panic button that automatically ends any opened position. If the interface is designed poorly, there is a high tendency for costly mistakes.
Also, consider features like order entry types, options for customization, features for backtesting, trading alert, etc. Any reputable broker will offer a free demo that allows you to try the trading platform before committing to it.
4. Features of the Account
All forex brokers have unique account features. In comparing the characteristics of various brokers, we recommend you compare the following areas: commissions and spread, the requirement for initial deposits, leverage and margin, alongside ease of deposits and withdrawal.
Leverage and Margin
Forex traders might have leverage present in their margin account, based on the broker. For instance, with leverage of 45:1, a trader with $1000 in the account can hold a position worth $45,000. You can get leverage as high as 200:1 from some brokers.
Leverage, many times, is to a trader’s advantage since they have a high-profit potential. It, however, should be handled like a two-edged sword since it also magnifies losses.
Spreads and Commissions
A broker taking commissions might charge a particular percentage of such spread – usually the difference between the “ask” and “bid” of a forex pair. If your broker does not charge a commission, they could make their money with wider spreads.
For instance, the spread might be a fixed spread of three pips, or variable, which is a factor of the market’s volatility. A wider spread makes it difficult to profit.
You can fund many Forex accounts with small deposits initially, as low as $50 in some cases. Leverage, however, magnifies the buying power, making it greater than your minimum deposit. This factor makes forex trading attractive to many. As a result, you will typically get standard, micro, and mini accounts with a series of initial deposits.
Ease of Withdrawal and Deposits
All brokers have their policy when it comes to withdrawal and funding. Generally, payment options for most brokers are ACH payment, PayPal, credit card, bank checks, wire transfer, personal checks, etc. Withdrawal also should be possible via check or wire transfer.
5. Customer Service
Forex trading is an online market that is traded every hour of the day. As a result, you will typically expect your broker to be available and offer uninterrupted services should you need help. Also, you want to ensure that your broker is available on various channels of communications.
The period it takes to resolve your queries matters as well. There might be technical issues at times, and you might not have the patience to wait for hours before help comes. The quality and skill of their customer service should all be checked.
Your broker has a huge role to play in your success as a forex trader. Here are five checklists with which you can screen various brokers and get the best one.